The Interview: Andrew McLaughlin

After delivering on a four-year growth strategy, RBS International CEO Andrew McLaughlin has begun a programme of digital transformation for the Jersey-based bank. But, he says, all stakeholders on the island must put their shoulder to the wheel if Jersey is to win in this fourth industrial revolution. Photography by John Liot

What’s your background and how did you get to where you are now?

My parents had a very small business, which was a great example to me in terms of work ethic, customer service and partnership. But it wasn’t a lucrative business – I always felt they deserved more for the amount of effort that they put in. So I didn’t want to go into that business after school and went to university instead. 

In my second year at university, a great lecturer – a chap called David Donald, who sadly just passed away – saw something in me and really encouraged me to take my studies seriously. 

That was a turning point, because I then surprised everyone, including myself, with some of my achievements at university – my first degree and then a PhD, collecting a couple of prizes and so forth – and that got me fast-tracked into academia.  

In my academic career, I was always very interested in the nexus between business, economics and policymaking and I’ve retained that interest to this day. 

Around the late 1980s/early 1990s, when I was finishing university, there was a lot of funding to support academic research in the lead-up to the European single market programme and the creation of the European Union (EU), and I threw myself into that. It connected with me. 

I was interested in the idea of making things bigger, of countries integrating and connecting rather than keeping themselves apart. It’s obviously a source of some personal sadness to see some of that unravelling across the UK and elsewhere.  

It was during my third academic post that I sort of fell into banking and finance. The Royal Bank of Scotland (RBS) asked me to do a little bit of consultancy relating to my academic work to support a project in the bank, and thereafter they asked me if I wanted to join full time and do similar work for them.

However, I was always confident that I could keep in touch with academia and go back to it if I didn’t like banking and finance. 

Also at that time, I got married and started a family – so I was also a bit more focused on remuneration than I had been in the previous five or six years.

How has your academic career benefited you at RBS? Has it given you a different perspective compared with career bankers?

With the benefit of hindsight, yes it did – and it still does. Studying for the PhD, in particular, has given me an ability to connect myself and business to the world around me and therefore improve the strategic options for the business. When you’re researching a PhD, it’s your job to try and connect your research with a wider set of interests. 

The second thing is you’re training hard to be intellectually curious, and I think that does bring a lot of creative thinking to problem-solving. 

The final thing it gave me was an inner confidence and resilience – I realised that if you put in the work, you will get the right outcomes. As I’ve gone through my corporate life, which is now 25 years, those things have become more and more valuable to me.

Much of your career with RBS was spent as its Chief Economist and it’s quite unusual to move from that into a CEO role. Again, has the Chief Economist experience given you a slightly different perspective compared with other CEOs?

Well, it’s even more unusual than that. I was in various economist/strategy roles from 2001 to 2008 and then, at the height of the crisis, I was asked to look after all aspects of communication, public affairs and marketing. So I had a little step in between being Chief Economist and CEO, which was crisis communications in all its forms.   

I’m not sure there are too many Chief Economists or Directors of Communication who then took up a CEO position, but it was always my ambition to do that. It was just about trying to find the right opportunity within the business.

I’m entirely grateful to the bank because I recognise it’s not a well-trodden career path but, thankfully, the bank’s the sort of employer that will look at your ability and skills, regularly assess and test those, and try to connect you with opportunities that stretch and develop you. 

It’s a huge advantage when you’re a Chief Economist in that you have to learn to write well and succinctly. You have to really think hard about how to get your key insights across to a very broad audience. At one moment, you would be writing a weekly one-page brief to 40,000 customers; at another level, you might be sat in front of a FTSE 100 director trying to give them advice on their market. So the ability to communicate and engage is key. 

And the second thing about business economics is that a lot of it is about trying to think through and support strategy. Both of those aspects have been a great asset as I’ve come into the CEO role. 

Why did becoming the CEO of RBS International appeal to you as a career move within the bank?

While I was RBS’s Chief Economist, I would regularly come down to the Channel Islands and give presentations to the Chambers of Commerce or have individual meetings with customers and government and so on. 

When the option to become CEO of RBS International started to appear on the horizon, I thought: “Actually, I’ve got some knowledge of that business and those markets; this is an opportunity for me to go into a business that was in the doldrums and do something really special with it.” 

That’s because I knew that the business was rooted in strong economies. I knew that if it had survived the financial crisis intact, then it must have a deep customer franchise. I felt I could go in and make some changes in the business and have a chance at being successful.  

You’ve been on the parent group’s executive management committee since last October. How is that role benefiting what you are able to do for RBS International?

In fact, I was on that executive committee from 2007 to 2014, but I stepped off it to take this job. So, in corporate speak, I took a step down to come to RBS International. 

But I’d hoped that if we were successful and our strategy worked, there would be an opportunity to step back up again. 

So it’s really pleasing, after four years, to go back up to that top table, which of course brings profile, investment and creative connectivity between RBS International and the rest of the bank, so it’s a very important relationship. 

But, really, I’m back up there because of the efforts of our 1,700 colleagues working across our six jurisdictions.

In a nutshell, can you tell us what RBS International does?

We’re focused on meeting the financial needs of our customers and if we do it in the right way, we’ll inspire their trust, from which comes loyalty and repeat business. 

There are two things that we try to do well. First, we try to deliver the everyday banking services of our UK high-street bank, NatWest, and private bank Coutts to customers in our markets. 

We bring those brilliant customer experiences and deliver them to households, wealth creators and businesses in our local markets such as Jersey and Guernsey with people based on the ground. Clients like to deal with the people who are making the decisions, and that is central to our business model. 

The second thing we aim to do is be the leading bank to the European fund sector, which exists onshore in places like London and Luxembourg and offshore in places like Jersey and Guernsey. That’s why we opened branches in London and in Luxembourg; we think it’s vital that we connect the Channel Islands to those cities.   

You mentioned that when you took on the role of CEO at RBS International, the business was in the doldrums. Then in 2018, you reported a 53% jump in income and the 22nd consecutive year of profit. How have you achieved this turnaround in performance?

If you look at the period from 2015 to 2018, we embarked on a strategy to try to open a growth frontier in new locations – principally London, Luxembourg and Edinburgh – whilst also improving every facet of the existing business. 

So, while these results do look quite eye-catching, they actually represent the culmination of four years’ hard work by everyone in the business. We did two things. The first was to try to take advantage of regulatory change so that we could acquire significant new customers. 

The second thing we focused the strategy on was to significantly improve our ability to meet more of the financial needs of existing customers in the Channel Islands – for example, striving to increase by 20% the number of mortgages we were able to provide to customers in the islands. So we acquired new business and we won new business and the two things together give you those results.

You said that the bank was taking advantage of regulatory change – what change was that?

I was referring to the so-called UK ringfencing legislation. Ringfencing is a unique UK government response to the 2008 financial crisis. No other country has followed this approach. And it’s fair to say that, for most British banks, it’s involved almost an eight-year programme of tumultuous change in their organisational and legal structures. 

When I held the role of Director of Communications, one of the tasks I had back in 2010-11 was to keep track of the Independent Commission on Banking, led by Sir John Vickers, and to understand those reforms as they were being put into legislation.  

So, when I came into RBS International, I had a very good understanding of that legislation and thought we had an opportunity to make a virtue of necessity. 

For RBS International, which could exist as a bank outside the ringfence – and for Jersey, quite frankly – it was an opportunity to acquire lucrative business, which we knew was going to be prohibited from the UK banks. It allowed us to open that London branch to look after those new customers and we acquired the depositary services business in Edinburgh. 

So, really, I think others’ loss has been our gain. And I hope that it’s been Jersey’s gain as well, because our headquarters are there and I think it’s increased the number of high-value-added jobs in the business on the island.

What was your proposition to these new customers?

A typical UK bank customer that fell outside the ringfence would be a European asset manager who requires all aspects of multicurrency and funds banking and who requires depository services for the investment funds that it manages. 

If you think about a large investment fund manager, they will have business activity in the Channel Islands, London and Luxembourg.

So, if we could establish ourselves in London and Luxembourg, we could then go to these new customers and say: “Look, whether you want to be onshore or offshore, whether you want to be inside the EU or outside the EU, we can meet all your financial needs with one banking platform and one service culture that you can trust and rely on.” That really was our proposition during this period of change.  

You recently announced a new three-year growth strategy. What will this focus on?

Over the past four years, we’ve grown the business by about 40% through these regulatory-inspired acquisitions and just growing with our existing customers. 

In the next three years, what we really want to focus on is bringing digital innovation to the heart of the bank, so that we make it much easier for colleagues to meet the needs of our customers and to deliver high returns for our shareholders. 

If we get it right, it will make us a strong and reliable partner for the Channel Islands, for the governments, for the regulators and for the community. If we can access new technologies to make us the easiest bank for customers to deal with, you’re also going to be the best place to work for colleagues, because what really inspires and excites colleagues is their ability to look after the customers really well.  

So, we’re really focused on bringing those technologies in. The bank has a scouting group in California that works with fintechs around the world and we’re now working with some of those organisations, showing them our business challenges, sharing with them the key customer experiences that we want to transform and getting their input as we try to bring a completely new approach to some of these services. 

This spring we have had two fintechs on the ground working with our teams. What types of innovation are you working on with these fintechs?

If you spoke to a number of different businesses in the financial services sector, all of them would say that the onboarding or account opening of new clients post-crisis has become a very expensive, lengthy and complicated process.  

I liken it a little bit to what happened to people trying to travel through airports in the period after 9/11. The industry had to respond to a profound change in security arrangements, but that created disruption. 

That was 2001. Here we are in 2019 and we’ve reached the stage where you can travel through an airport – I’ve just done it in America – and you don’t have to take anything out of your bag. They have the technology now to see everything that’s going on, so you can move through quickly. Similarly, you don’t even need your passport in some airports, or you certainly only have to show it once. 

It’s taken that industry almost two decades to figure out how to restore what was previously a fairly straightforward and convenient experience, while responding to the massive change in risk for airline travel.  

The same thing’s happened in financial services. Quite rightly, regulators have concerns about money laundering, terrorist financing and other aspects of financial crime and fraud. Cumulatively, we’ve introduced a whole layer of security into the opening and monitoring of bank accounts to try to address those risks, and then suddenly found the experience for customers is poor. 

We’re working with fintechs to try, like the airports, to restore an easy, convenient but safe process to account opening. If we can do it, it will be a huge productivity gain, not just for us but for our customers and for the regulators and, very importantly, for the economy of places like Jersey and Guernsey.

Do you foresee a reduction in employee numbers as you move towards more automation and digital innovation?

All of my experience as an economist tells me that in periods of seismic change, in the short run some jobs are disrupted more than others, but you normally end up with even more jobs and opportunities in the economy than you started with. What’s very difficult to be specific about is who will be most disrupted and what future jobs will be available to people.  

To give you a good example of this, we have just introduced eight new customer journey manager roles in the Channel Islands. We have those jobs because when you’re applying those digital technologies, you’re able to look at the customer experience from one end to the other. Those are jobs that didn’t exist before.  

The bank has done a lot of research on the skills capabilities it feels that it will need by 2025, when we’re a fully digital organisation – we call it Future Capabilities. We’ve set out those requirements. We now use them for all recruitment and we’re really focusing people’s development plans on acquiring those new skills. 

So there’s a big change taking place in the bank to support colleagues through what we recognise as this fourth industrial revolution.  

We’re headquartered in Jersey and the whole of Jersey is going through this transition, including the public sector. Our other commitment to staff is that if we don’t have a job for you, we will make sure you’ve got the skills that mean someone else will have a job for you.  

I think it’s really important that we have that workforce plan in place with the Government of Jersey and others, so that if people leave banking and finance, they can be absorbed into the rest of the economy. 

This is a really important point, more narrowly, in the Channel Islands. I feel strongly that the finance sector must accept that, because it hasn’t fully automated, we are taking up labour, land and buildings that could be very usefully redeployed within the economy for housing and other sectors. 

It’s really important that we invest and have the highest-value-added jobs possible in the financial sector in order to make sure that other sectors can access the people and infrastructure.

What is your assessment of how Brexit is going to affect RBS International?

I saw someone say that the political separation from Europe is going to take longer than the geological separation of Britain from Europe – and it’s certainly starting to feel that way. 

But, yes, my sadness expressed earlier was a personal one because, as an academic, I devoted a part of my working life and thoughts to the single European market programme, less so to the political aspects of integration. I still think there is a huge amount of benefit for all of Europe in that programme. 

However, we are where we are. With my business hat on, the first thing I’d say is that Brexit is an emotional and a political issue, but it’s not an economic issue. That’s become very evident in the period since the referendum. Our bank, from the Chairman down, has been clear that we see no economic upside from Brexit within five years, but we understand and respect that people do not vote for economic reasons alone.  

Like all businesses, I think RBS International can do without the uncertainty that Brexit has visited on our marketplace. There is no doubt that some of our expat mortgage customers – British people working around the world – have become more cautious about reinvesting their earnings in buying properties in the UK and there’s no doubt that some of our largest funds clients have become more cautious about putting their investors’ funds into UK assets.  

How is the bank preparing for the day when Brexit finally happens?

In operational terms, RBS International has a comprehensive Brexit readiness plan in place for all outcomes when the time comes. We’ve shared that with the governments in our jurisdictions, and with the regulators, so that they can see how we are planning for the potential impacts and range of outcomes. 

Brexit has already had an impact on our strategy because one of our reasons for opening the branch in Luxembourg was to give us a hedge against Brexit. We wanted to be in a position where, if a customer said to us: “I need to stay inside the EU”, we could effectively continue to look after them via our Luxembourg branch.

All that remains to be seen is whether the nature of Brexit means Luxembourg suddenly becomes the biggest growth node in our business very quickly or whether, as at the moment, it becomes a fast-growing part of our business.

The UK government bailout of RBS in 2008 caused great reputational damage at the time. How do negative headlines about the parent group affect RBS International in terms of business and employee morale? 

Like everyone working in banking before 2007, I was profoundly chastened by the crisis. I had a public profile because of my job as Chief Economist and it really did teach me a lifelong lesson in humility. 

Almost a decade on, the intensity of the reputational storm has dropped and the focus is on trying to rebuild customer and public trust almost street corner by street corner, interaction by interaction, daily experience by daily experience. 

That’s something the bank measures very closely: how is trust returning among customers who know us and deal with us every day, and how is it returning among the wider public who don’t deal with us every day and therefore have a view of us which is largely shaped by our reputation and how we’re reported?  

RBS International was insulated from the storm more than one might imagine because it remained profitable even at the height of the crisis. It remained reliable for its customers and it remained very safe for its regulators and others. It didn’t make too many knee-jerk decisions.  

That said, it was a traumatic time. I’m sure colleagues sat on the bus hiding their staff passes. I’m sure people felt really uncomfortable at dinner parties and walking in the street because they were tied to the most enormous hit probably imaginable in corporate life – and that probably remains true to this day.  

It’s a huge testament to the 1,700 colleagues in RBS International that our customer trust scores are significantly higher than most UK banks. They managed to maintain daily interactions with customers. Although the news was terrible, customers were in a relationship with someone they trusted, even if they had doubts about who they worked for. 

But I don’t think anyone in any part of the bank is going to forget what happened.

RBS’s CEO Ross McEwan, who steered the bank through this very tricky period,  has announced that he intends to stand down. What’s your assessment of how well he’s done, and what type of leader do you think the group needs for its next phase of development?

Ross is a great leader. He’s a very authentic and warm man. The great thing about him as CEO is that he sticks up for the customer every day. That’s a huge legacy he’s left culturally in the business. 

I’ve worked with four CEOs in my time at the bank, and three others who were colleagues in the bank who’ve gone on to be CEOs at other banks, and all of them have their strengths. Ross is probably the only one who could have sat in my dad’s shop and engaged him about his business and his personal life – that’s probably the biggest compliment I can pay him.  

The board are now conducting an internal and external search for Ross’s successor.  Whoever’s in charge, I just want them to be good, and I recognise that I and all colleagues in the bank have a role to play in that by supporting them and doing our job well every day for the customers. 

The changes Ross has brought about in our values and culture – the incredible focus on the customer – will endure and it’s absolutely essential that it does. But also, of course, we hope that whoever’s in next will bring something of themselves to the job and build on his and other people’s work.

Have you thought about putting yourself forward for the post?

No, that’s not one for me. I’m perfectly happy doing what I’m doing.

As an economist, what’s your view on the shift we’re witnessing in the economic world order, and how do international financial centres such as Jersey and Guernsey need to respond to this?

The biggest thing I’ve seen happening since the crisis is that the US has skilfully re-established its dominance in the global capital markets and investment banking and I think Jersey, in particular, has noticed that. It has begun to invest in an office in New York and that’s a very important development. 

But probably the most pressing thing for all of our jurisdictions – be it Jersey, Guernsey, the Isle of Man or Gibraltar – is to work out the relationship with the UK and the EU in a post-Brexit world. What they decide there will have a big bearing on how they pivot into the rest of the world. 

Looking ahead, what do you see as the major challenges – and opportunities – facing the Channel Islands banking sector?

It feels to me that the Channel Islands are reaching an inflection point. They did incredibly well from the last industrial revolution, which was really the liberalisation of financial markets from the mid-1970s up until 2006-07. That industrial revolution fundamentally changed the economic prospects of the Channel Islands. But now they have to face up to this fourth industrial revolution. 

These emerging digital, AI and robotic technologies are disrupting business models and public sector service delivery models, They’re transforming people’s lives and their life chances.  

It’s a very exciting time for the Channel Islands because in this new industrial revolution you don’t need to be big and you don’t have to have lots of natural resources such as land to succeed. You can develop unbelievable business opportunities out of the minds of your citizens. I think that’s incredibly exciting. 

But it’s therefore vital that, among other things, we get public services – including education – in the best possible shape while business leaders are trying to get their companies in the best possible shape. We all need to put a shoulder to that wheel if Jersey’s going to be a smart, successful and healthy place for the next generation. 

Jersey’s government – and we’re seeing the same thing in Guernsey now as well – had the self-awareness and vision to realise they needed to bring a very experienced senior leader into the public sector.

That was a big step and I think they’ve recruited well in Charlie Parker, the Chief Executive of the Government of Jersey. He deserves the support of business leaders who know how difficult it is to implement transformational change.  

So for me, over the next couple of years, the biggest thing is that we support the government as they try and go through that huge reform process, that we support the leadership because we know how difficult it is. And, between us, I hope that we can lead Jersey, Guernsey and the other places well through this fourth industrial revolution.

We must not fall into that trap of everyone commenting on everyone else’s work, and everyone being a world-class problem identifier rather than putting their shoulder to the wheel to solve what seem like big problems but are actually big opportunities.